The CFPB Small Business Lending Data Collection NPRM

What you need to know about the new rule of Section 1071 of the Dodd-Frank Act.

Section 1071 of the Dodd-Frank Act was intended to facilitate fair lending laws by identifying business and community development lending needs and barriers for small, women-owned and minority businesses. Section 1071 amended the Equal Credit Opportunity Act (ECOA), requiring financial institutions to:

  1. Inquire if the business is a small, women- or minority-owned business.
  2. Collect, maintain and annually report lending data.
  3. Restrict data access to relevant personnel.
  4. Make the data available for public disclosure.

It’s been more than ten years since the Dodd-Frank Wall Street Reform and Consumer Protection Act  (Dodd Frank Act) became public law. However, this is the first time Section 1071 is being fully addressed. Early this September, the Consumer Financial Protection Board published a 900+ page proposal. They also published a webpage with resources relevant to the rulemaking.

The intention is to gather data on whether the borrower is a small, women- or minority-owned business. The rule presents 23 data points, some of which you may already be collecting. If the borrower declines to self-identify, the lender should take visual or last name clues to supply the necessary data. The CFPB will also offer a Filing Instructions Guide to help simplify and streamline the data submission process.

Only covered financial institutions will be required to comply with section 1071’s data collection and reporting requirements. All other financial institutions can submit the data voluntarily in certain circumstances. But what constitutes a covered financial institution? According to the rule, a covered financial institution must have conducted at least 25 small business loans during each of the previous two years. Although a financial institution may be exempt from reporting by this definition, it may not be exempt from Home Mortgage Disclosure Act (HMDA) reporting. It’s important to know where your institution stands and not to assume that if you are exempt from one, then you are exempt from both.

A small business will be defined as a business with a gross annual revenue of less than $5 million for its preceding fiscal year. Although based on the Community Reinvestment Act (CRA), the rule relies on the definition set by the Small Business Administration (SBA).

A 90-day comment period begins once published in the Federal Register. If you have something to say, this is your opportunity to be heard. Mandatory compliance begins 18 months after the Federal Register publishes the final rule. There will be no immediate effect or need for action. However, it doesn’t hurt to start planning for this new rule now.

As Marquis Software Solutions continues to monitor the situation, we’ll learn more about the ruling. And once it is ratified, we’ll take a deep dive into what this means for financial institutions of all sizes and keep you up-to-date on what we find. By staying on top of the situation, we hope to make implementing this new rule a painless and stress-free process.

CFPB COVID-19 Policy Rescissions and What That Means to You

When COVID-19 first made its appearance, it affected every part of our lives, including our financial health and well-being. The pandemic also caused a monumental pivot on how we conducted business. The financial industry’s shift to digital and drain on resources could become a compliance nightmare as more and more people and businesses sought relief through loans and other considerations.

To alleviate the strain and ensure that funding would continue to reach those who needed it, the Consumer Financial Protection Bureau (CFPB) released seven Statements of Policy that affected how banks handle their compliance responsibilities. For example, one revision temporarily created a hold on citing or enforcing any action against a financial institution that did not keep up with reporting their Home Mortgage Disclosure Act (HMDA) data quarterly. Another stated that the CFPB “…does not intend to cite a violation in an examination or bring an enforcement action against a creditor that takes longer than required by the regulation to resolve a billing error.”

These temporary measures allowed financial institutions to tend to their customers’ needs without placing an undue burden upon their employees. Banks and credit unions would still need to acquire the same data and follow the same regulations; they just had more time and increased flexibility.

Now that the country is opening up, the CFPB has determined it is time to get back to business as usual. On April 1, 2021, the Bureau rescinded these temporary Statements of Policy. However, business as usual will not be the same as experienced over the last four years. Under the new administration, the CFPB will be looking for non-compliance issues more “actively and aggressively” than the previous administration.

What does this mean for you and your financial institution? It means that when it comes to reporting time, your data must be clean and up-to-date. From your Compliance Management System (CMS) to considerations taken on approving and declining loans, you still have to present the necessary data to support your actions. You have to identify issues occurring over the past year and a half and create a plan that addresses correcting them. You have to be able to tell your story accurately and with confidence.

As banks, credit unions and mortgage companies return to their physical facilities, the drain on resources continues. While the CDC’s eviction moratorium was slated to end on July 31, 2021, President Biden announced on July 29 that federal agencies should use their authority to extend their respective eviction moratoria. Therefore, the Federal Housing Finance Agency and the Federal Housing Administration extended their eviction moratoria through September 30 for foreclosed borrowers and other occupants. Meanwhile, more than $46 billion in emergency rental assistance has already been allocated by Congress and awaits distribution.

The influx of mortgage forbearance cases was supposed to begin in October of 2021. Financial institutions are still reallocating and training their employees as they continue to adapt to the changing landscape.

Even if your compliance team is still intact, the constantly changing regulations and Statement of Policy rescissions can put more pressure on already stressed team members. Partnering with compliance experts can help see you through the first hurdle – returning to pre-pandemic protocols and procedures.

Marquis Software Solutions offers a suite of compliance solutions to help you through your compliance issues. With CenTrax NEXT, you’ll have all you need for Fair Lending, HMDA and CRA. This Marquis flagship compliance software comes with customizable dashboards, intuitive reporting tools, advanced mapping technology, security management and demographics analysis to ensure accurate submissions and exams.

To pull everything together, Marquis compliance experts offer an array of services from HMDA/CRA file review, risk assessments, Compliance Management System reviews and self-assessments. We’ve stayed on top of how special considerations brought on by the pandemic affect compliance and what that means to your financial institution. We’ll give you all the support you need to tell your story and face regulators with confidence.

To learn more about Marquis’ comprehensive compliance solutions, contact us at [email protected].

NOTE: COVID-19 and the Delta variant continue to impact the ability of home-owners and renters to meet their obligations. Marquis will continue to monitor the situation and how that impacts your compliance efforts.

The End of the Moratorium on Mortgage Foreclosures and How It Affects Your Financial Institution

When the COVID-19 pandemic began, we had no idea of the effect it would have on the financial services industry. But we all knew one thing for sure: with so many people losing their jobs or having to endure a reduction in their hours, mortgage payments were going to fall behind on a massive scale. The government stepped up with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, putting a moratorium on foreclosures for federally funded mortgages until June 30, 2021.

What this means for financial institutions is there will be an influx of forbearance cases maturing in the fall of 2021. Unless the moratorium is extended once again, and there have been steps taken in that direction, an unprecedented 1.7 million cases will exit forbearance programs in the fall. Financial institutions will need to be ready to hit the ground running by September 2021 with properly trained personnel, resources and guidance in place.

In addition, the new administration has committed to increased scrutiny over Fair Lending and Fair Servicing practices. According to a Consumer Financial Protection Bureau (CFPB) bulletin, the CFPB will “closely monitor how servicers engage with borrowers, respond to borrower requests and process applications for loss mitigation.” The CFPB has strongly encouraged financial institutions to be proactive, work with borrowers, address language access issues, fairly evaluate income, promptly handle inquiries and, above all, prevent avoidable foreclosures. “Our first priority is ensuring struggling families get the assistance they need,” stated CFPB Acting Director, Dave Uejio. “Servicers who put struggling families first have nothing to fear from our oversight, but we will hold accountable those who cause harm to homeowners and families.”

Over the past year, banks and credit unions of all sizes have developed new programs and practices to deal with the influx of forbearance cases. For some, the large number of cases, drain on resources and adaptation to a digital environment may have caused difficulty keeping up with standard compliance practices. A vital step in that direction is developing a standardized relief assessment program with well-defined, consistent eligibility requirements. With a standardized program, servicers across the enterprise will have the guidance they need to service those exiting forbearance and meet Fair Servicing criteria. Of course, there will always be cases that will deviate from standards. In those cases, the exceptions and reasoning behind them should be fully documented.

To further mitigate risk, conduct a review and analysis of your Fair Lending and Fair Servicing protocols and practices, even if a review is not scheduled at this time. This will allow you to identify any potential risk factors, address them early and tell your story with confidence. However, conducting a comprehensive review can cause undue stress and pressure on already overworked resources. Marquis can help.

The Marquis Compliance Professional Services team, known for their expertise and personal service, are well-versed in all aspects of compliance, including Fair Lending and Fair Servicing. They can perform audits and assessments to ensure you have the necessary policies, processes and procedures in place and define areas that need attention. Our turnkey solution combines industry-leading CenTrax NEXT compliance software with the experience and intuitive skills of the Marquis Compliance Professional Services experts. This powerful combination of data and specialists will enable you to identify risk factors and address them before they become an issue.

As Uejio stated, “There is no time to waste, and no excuse for inaction. No one should be surprised by what is coming.” Contact Marquis to learn more about our compliance solutions and how they can help you prepare your financial institution for the flood of maturing forbearance cases and the increased scrutiny that will follow.

Understanding CRA Reform

Understanding CRA Reform

An overview and comparison of the Federal Reserve’s CRA ANPR and the OCC’s final ruling

Since its enactment in 1977, the Community Reinvestment Act (CRA) has been an important tool in addressing redlining and the lack of investments in low- to middle-income (LMI) communities. It requires banks to meet the lending needs of their community, including credit-worthy LMI individuals and minority-owned businesses. However, it has failed to keep pace with today’s evolving banking environment or improve credit accessibility for those it was designed to protect.

It’s been more than 25 years since the last revisions to the CRA, and during that time mobile and digital banking has grown in popularity without being addressed in CRA requirements. In addition, the gap between black and white home ownership is 3% greater than it was in 1960.1 It’s clear that the CRA needs to be revisited and updated. This article will compare and contrast the OCC’s and the Fed’s efforts to strengthen and modernize existing CRA requirements.

The Office of the Comptroller of the Currency

The OCC released an Advanced Notice of Proposed Rulemaking in August 2018. The FDIC joined the OCC and released a joint Notice of Proposed Rulemaking in December 2019 and opened the floor to stakeholder comments to help inform and guide the final ruling. Citing the need to focus on issues related to the 2020 COVID-19 pandemic, the FDIC removed themselves from the rulemaking process. In May 2020, the OCC released their final ruling, which includes, but is not limited to:

  • Clearly enumerating CRA qualifying activities
  • Defining assessment areas
  • Establishing performance standards
  • Establishing data collection and retention requirements

While the final rule went into effect on October 1, 2020, banks subject to general, wholesale and limited performance standards have until January 1, 2023 to comply. Intermediate and small banks must comply with the ruling by January 1, 2024.

The Federal Reserve

In September 2020, the Fed released an ANPR on updating their CRA regulations with a 120-day comment period ending February 16, 2021. Stakeholders “have expressed strong support for the agencies to work together to modernize CRA.”2 Stakeholders were asked for feedback regarding the Fed’s efforts to:

  • Bring greater clarity, consistency, and transparency to performance evaluations
  • Minimize data collection and reporting burden
  • Base performance evaluations on bank size, business models and local conditions
  • Clarify and expand eligible CRA activities in LMI communities
  • Recognize the special circumstances of small banks in rural areas

Their intent is to ensure LMI banking needs are met, promote financial inclusion and address changes in the banking industry over the past 25 years.

How they differ.

Both reform efforts seek to align CRA requirements and reporting with today’s banking needs, from modernizing assessment areas to clarifying eligible activities for CRA credit. However, the approaches differ in a few areas.

While the OCC rule was finalized, the FED ANPR is still accepting comments. Pundits believe there is still time for the agencies to come together to provide uniform regulations, as stakeholders across the board have requested.

Be ready for your next CRA examination.

Understanding updated CRA requirements, from whichever regulatory body you report to, is essential to receive the CRA credit your bank has earned. At Marquis, we’ve kept and continue to keep our finger on the pulse of the CRA modernization process. When it becomes time to implement new CRA regulations, Marquis compliance experts will be ready. Marquis has a proven history of helping clients tell their CRA story.

“Our recent CRA Exam was truly a team effort, involving our Production Officers, CFO, Investment Officer, CRA Committee and some invaluable help from Marquis,” says Roger McLaren, Vice President, Inwood National Bank. “With CRA, like in life, you have to keep score, tell your story and pat yourself on the back. In the end, it comes down to solid record-keeping. Between our efforts, Marquis Software’s ability to sort and organize our data, and assistance from Marquis Compliance Professional Services, we were able to assemble the data we needed, analyze the results, and verify our success. It all culminated in an Outstanding CRA Exam rating.”

Contact us at [email protected] to see how Marquis is addressing this much-needed change to the CRA and how it affects your institution.

 

 

1 Urban Institute, Reducing the Racial Homeownership Gap https://www.urban.org/policy-centers/housing-finance-policy-center/projects/reducing-racial-homeownership-gap

2 Federal Reserve, Fact Sheet on the Community Reinvestment Act, Advanced Notice of Proposed Rulemaking, September 2020 https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200921a1.pdf